Gold, silver, pgms, mining and geopolitical comment and news

GSR

Here’s my latest article published on the Sharps Pixley website earlier today looking at the collapsing US Dollar and its impact on the gold price. While gold is very definitely sharply higher in dollars, the fall in the dollar index means that in some other significant currencies – notably the British pound which finds itself at its highest level against the dollar since the Brexit vote a year and a half ago – the gold price may actually have fallen.

Dollar drops, gold soars as U.S. starts to lose control

If gold trading this morning in Europe is anything to go by, gold is headed for US$1,350 an ounce, and not before time. But before non-U.S. gold-owning citizens get carried away with euphoria they should also be aware that the dollar index has dropped below 90 for the first time since early 2014 and the gold price in many other key currencies like the British pound (easily at its highest level against the dollar since the Brexit vote) the Swiss Franc and the Japanese yen, has actually fallen. Silver though has been somewhat left behind with the Gold:Silver Ratio at well over 78, but we do anticipate, if gold stays in the high $1,340s, or breaks through $1,350, that silver will play catch-up. It usually outperforms gold when the latter is rising sharply.

The performance of the dollar gold price level, though, does suggest that the big money into the gold futures markets, which had been successful in keeping the shiny yellow metal price down below $1,340, may be losing control. It could thus see discretion as the better part of valour and allow gold to find a new top and then work hard again to keep it there.

The key though looks to be U.S. dollar strength and it remains to be seen whether the recent decline is an engineered one in an attempt to make U.S.-manufactured goods more competitive (a policy that had had been signalled by President Trump some time back – although since denied). If so a dollar decline may have gained more steam than intended, as these things do. On the face of things the U.S. economy is in a decent growth stage, unemployment is at a low level – both things that might normally lead to dollar strength, not weakness. But perhaps massaged government-produced statistics are beginning to be doubted and the huge U.S. debt level is beginning to come home to roost as some countries seemingly (reportedly) are beginning to reduce their reliance on dollar denominated securities in their foreign exchange holdings. Perhaps the Trump Presidency is not making America great again – at least in terms of dollar dominance of global financial markets – but having the opposite effect globally.

Could all this herald the start of the much predicted crash. Stock markets appear to be stalling, bitcoin has come off nearly 50% from its peak – maybe the speculators and wealth protectors are at last beginning to see gold as an answer. It’s probably too early to tell yet, but signs don’t augur well for the seemingly unending bull markets in equities we have been seeing in the past few years. Market growth is all about confidence. Once that starts getting eroded it can turn into a desperate downwards spiral.

The problem of course for gold is that, should markets collapse, it too could suffer collateral damage as institutions and funds struggle for liquidity and have to sell good assets to stay afloat. We saw this in 2008 in the last big stock market collapse, but the comfort for gold holders, perhaps, is that gold was far faster to recover than equities and went on to perhaps its strongest bull market ever taking the price up to around $1,900-plus over three and a half years, nearly tripling its price from its October 2008 nadir.

As I write the spot gold price has indeed briefly hit the $1,350 level. Whether the U.S. market will allow it to stay there when it opens in just over 3 hours time remains to be seen.

The latest commentary from silver specialist analyst Ted Butler, published on Silverseek.com foresees a rapid and spectacular rise in the silver price ahead:

“I am convinced that silver will soon explode in price in a manner of unprecedented proportions, both in terms of previous silver rallies and relative to all other commodities. By unprecedented, I mean that the price of silver will move suddenly and shockingly higher in a manner never witnessed previously, including the great price run ups in 1980 and 2011. The highest prior price level of $50 will quickly be exceeded.

By “soon”, I mean that the move can commence at any time, but more likely before many weeks or months have gone by. I know that the price of silver has been declining on a daily basis nonstop for three weeks now, itself an unprecedented move, but I also know the reason for the decline and how the sharply improved COMEX market structure has always guaranteed a rally in a reasonable period of time. The only question is whether on the next silver price rally will JPMorgan add aggressively to its COMEX short positions. I’m suggesting JPMorgan is not likely to add to short positions on the next rally.

At the heart of the unprecedented move higher in the price of silver is the manner in which it will occur……”

We have recently speculated as to how the gold price might perform now U.S. execs are back at their desks after holidaying in the summer sunshine. Precious metals investors will no doubt recall the time in 2011 when the end of the summer holidays precipitated the beginnings of a prolonged period of precious metals price weakness and will have been worried that this year might see something of the same effect given gold and silver’s strong run over the first half of the year, but this year’s price performance has been very different from that of 2011. Back then the gold price had soared throughout the normally weak July and August months – unsustainably so as it proved. This year the gold price has been pretty flat to weak in July and August following a Brexit boost in late June. Many analysts have seen this as consolidation, perhaps ahead of an upturn in the final four months of the year. Early signs for this look good with the gold price today heading into the mid-$1,340s. Indeed it has hit $1,350 on the spot market on a couple of occasions before slipping back.

Thus, on the first days of trading after the Labor Day holiday, initial portents for precious metals price performance will have been encouraging for investors, helped by weaker than expected PMI Services data and by a weaker dollar. Interestingly, like Friday’s nonfarm payroll figures, the latest Services PMI is not actually weak per se – remaining above the all-important 50 level – but was sharply weaker than analysts’ expectations. The U.S. economy may thus well be growing, but perhaps at a far slower rate than entities like the U.S. Fed would like us to believe.

The net result of the weaker than anticipated US data is for analysts and investors to assume the Fed is unlikely to restart interest rate tightening at the September FOMC meeting in two weeks’ time, for fear of nipping any tentative economic upturn in the bud. If this assumption is correct – and it may be dangerous to assume that it is, given Fed credibility could be at stake in that it had foreshadowed up to four interest rate hikes in 2016 back in December last – then that effectively rules out any interest rate hike announcement until the December FOMC meeting which takes place December 13-14. And if US data follows its current weaker than anticipated course then even a December rate hike may be in doubt. (November is effectively ruled out as a rate increase announcement then would only come about a week before the Presidential Election date scheduled for November 8th.)

Of course the Presidential Election itself could provide yet another huge degree of uncertainty in U.S. markets. According to the latest CNN poll, Donald Trump and Hillary Clinton are running neck and neck – and the Donald is actually in the lead taking into account those who are most likely to turn out and vote, although the majority still anticipates a Clinton victory. Voter turnout could be key with neither candidate being popular with the electorate and, if anything, the latest polls show that Clinton is even less popular, or trusted, among registered Democrats than Trump is among Republicans. As with Brexit, voter turnout may be key and with the two contenders being so unpopular even among their own party supporters, this could be hugely unpredictable.

With the election only two months away we will be seeing probably the most vitriolic, and personally antagonistic, campaign ever which will do nothing for any positive global perceptions on the US political system and could rebound on the economy and markets dependent on who is seen as gaining the upper hand. As someone who awoke on June 24th to hear that UK voters had gone for Brexit, contrary to nearly all the polls, one cannot but help wondering if U.S. voters will be similarly shocked at the Presidential outcome on November 8th. Whoever is elected, economic uncertainty will undoubtedly come to the fore and that could give a big boost to gold in the final two months of the year – and could see the dollar and the general equities markets take a substantial knock further hamstringing any Fed move to raise interest rates.

As we advised UK investors to invest in gold ahead of the Brexit vote – and those who did were rewarded well with the double whammy of a dive in the value of the pound against the dollar coupled with a rise in the gold price – US investors might also be well advised to buy gold ahead of the Presidential election as financial insurance against an unlikely result causing the dollar to fall and gold to rise (which many will see as effectively the same thing!)

For the moment, gold still seems to be holding up in the $1,340s and silver at or around just below $20. After rising to above 71, the Gold:Silver ratio (GSR) has come back down to a little below 68 showing that, as usual silver has been performing better than gold when the latter is looking even just a little stronger. Should gold breach $1,350, expect the GSR to come down even more and silver could easily hit the mid $20s or higher – still an awful long way off where it rose to up until the big take-down in 2011, but in terms of performance this year has already done well for those invested in it at the beginning of 2016.

This is an updated and edited version of one posted by me on the Sharps Pixley website earlier in the week

Where will the gold price be heading once the U.S. institutions and traders get back from their summer breaks in the Hamptons, the Caribbean and elsewhere and the market gets fully back on track after a relatively thin trading market over the peak of the northern summer? That is the question which many precious metals investors will be asking themselves as the end of the holiday season approaches with memories of 2011 in mind, when gold soared over the summer, reaching new highs and with the expectation that prices would continue onwards and upwards. This was just not to be as the gold price then stuttered and started turning downwards heralding the start of a four and a half year bear market in precious metals.

I commented on this in a little more detail in an article on sharpspixley.com and an edited verison of this article, with some additional comment, is included below:

This year the gold price has been rising ever since the beginning of January, accompanied by a big rise in the holdings in gold ETFs. This has been notably so in the biggest of them all, SPDR Gold Shares (GLD), which had added a massive 340 tonnes of gold peaking at around the July 4th Independence Day holiday in the USA at a total of 982.7 tonnes, the highest level since June 2013 – then a time when holdings were falling quite sharply. But since July 6th this year, atlthough the holdings have fluctuated up and down, the predominant movement has been downwards and has seen sales out of the biggest ETF of 24.3 tonnes. (It did add 2.38 tonnes yesterday so the movement has not only been downwards, but that has been the general trend.)

The overall fall in GLD has also coincided with a sharp fall in retail purchases of gold coins and bars in the U.S. in particular and the worry for the gold investor is whether this has been due to weaker seasonal demand because of the northern hemisphere summer holiday season, or whether it represents a change in overall sentiment from being gold positive to gold negative or gold indifferent!.

Recently, gold researcher Koos Jansen writing on www.bullionstar.com looked at the statistical relationship between the gold price and gold demand in the West and in Asia. He concluded that when Asian gold demand has been strong and Western demand weak, the gold price has fallen and conversely when Western demand has been strong and Asian demand weak the gold price has risen. We think this may be something of a misinterpretation in our being uncertain how relevant Asian demand has been at all in this respect. Whereas strong Asian demand may well have meant that the gold price did not fall as far as it might have done without it, we would suggest that up until now it has very much been Western demand which has been influencing the gold price most strongly and the sharp fall-off in Asian demand we have seen this year has been largely irrelevant, given that it still seems to be the Western gold futures markets – notably COMEX – which have been the prime gold price drivers.

While this may be the case up until now, it seems to be becoming increasingly apparent that the GLD holdings are in a current downwards trend, although whether this is due to the northern summer holiday season when many of the big fund and institutional managers are away and markets are consequently a little thinner, remains a possibility. We will have to wait until after Labor Day on September 5th – which is seen as the end of the holiday season in the USA – to see whether this is the case. But while many see the return of the markets to full swing as being potentially a positive for gold, one only needs a short memory span of 5 years to recall that it was effectively Labor Day in 2011 that saw the true beginning of the recent bear market in gold after an abnormally strong summer for the yellow metal. Could this happen again?

Unlike 2011 though, this year the gold price has also taken something of a summer holiday. After the post Brexit surge it has actually remained in a fairly tight trading range which some see as price consolidation. But again we will have to wait for the market to become fully functional again before we can see a new trend developing.

With markets jittery again over the possibility of a Fed rate rise in September – perhaps still unlikely with December, if then, perhaps a more possible timing – we could well see continuing gold price uncertainty until after the September FOMC meeting which takes place September 20-21 and a volatile market for the yellow metal continuing in the meantime. If the recent moves in price are indeed consolidation then general prospects for the precious metals could be seen as positive given that the really big drivers of unprecedented global debt and the seemingly increasing imposition of negative interest rates around the globe are well set.

At the moment gold seems to have been pressuring downside resistance at around $1,330, but riding this particular storm fairly well. For silver it is also notable that the Gold:Silver ratio (GSR) has risen back to over 70 after falling to below 65 but some see this too as an indicator of where the gold price is headed. We could well be in for a very uncertain month ahead for precious metals. But keep an eye on GLD movements and the GSR. They could both be giving us a guide as to whether the medium term outlook is positive or negative.

Trading overnight on the Shanghai Gold Exchange (SGE) served to give the gold price a boost overnight last night. The SGE’s am benchmark fix came in at the equivalent of US$1329.05 an ounce, around $10 higher than it had been trading on Western markets the previous day, and the pm SGE benchmark price came in higher at $1.335.27 on http://www.kitco.com’s calculations – the site has a nice interactive tabulation of the SGE benchmark prices in various combinations of yuan, U.S. dollars, ounces and grams.

Whether the SGE uptick will start to show up in terms of a pick-up in Asian demand – notably in China where it appears to have been lacklustre so far this year – remains to be seen. But this could already be happening given net imports of gold into mainland China from Hong Kong (which currently accounts for around 40-50% of such imports), rose sharply in May to the highest level in five months at 115 tonnes. If Asian demand does pick up – we will be watching mainland China gold import levels with perhaps added interest in the months ahead to see if there is a continuing improvement – and if gold ETF inflows continue at recent levels, there could well be even more of a squeeze in physical gold availability given inventories of available. non-attributable, metal in London and New York appear to be getting particularly tight.

The real precious metals beneficiary of yesterday’s gold move – indeed of gold’s overall performance over the past few weeks – has been silver, which for the first time since September 2014 has breached the $19 an ounce level. Indeed its rise of around 6% over the past 10 days has been pretty spectacular. This is also showing up strongly in the Gold:Silver Ratio (GSR) – effectively calculating the amount of silver it would take to ‘buy a similar weight in gold – which has come down to below 70 from a high of over 83 only around three short months ago. silver had seemed to be relatively slow to move, but now it appears to have some momentum behind it.

As a result of silver’s increase, silver stocks – even before the latest big surge in price – had been probably the best performing stock market subsector year to date – See:Silver Stocks Best Investment YTD. Can They Continue to perform?. But since I wrote that article only a few days ago they have, not surprisingly, continued to move sharply upwards alongside the boost in the silver price. From the UK investor’s point of view, most of these major silver stocks are quoted in Toronto (TSX) and the USA (NYSE or NASDAQ) – the only major primary silver producers with UK quotes are Fresnillo (FRES) and Hochschild (HOC). FRES is up 142% year to date and HOC 178%. Another more diversified approach would be the Way Charteris Gold and Precious Metals Fund where silver stocks comprise a large part of its major investments. After a pretty torrid performance over the past few years, this year to date it is up around 154% from the beginning of January. These are impressive performances, but as usual with silver, while the upside potential is really positive, the downside risks are similarly large. Silver tends to outperform gold when the latter is rising, but can substantially underperform on the downside.

Silver too, as a very small market sector in monetary investment terms, is also seen as being particularly prone to potential manipulation on the futures markets by a number of silver analysts and by virtually the whole community of out and out silver bulls. They will point to a number of occasions, and particularly April 2011, when silver was on a roll and reached just short of $50 an ounce, where huge seemingly anomalous sales on the futures markets saw it crash – even when gold at the time was to continue on an upwards path for another 4 months.

Both silver and gold have benefited quite strongly from the shock UK Brexit referendum outcome which has had some strange effects on markets in general. Gold, and silver, have benefited, while the pound sterling has plunged, but the UK’s well-followed FTSE 100 Index, after a stutter, recovered all its lost ground, and more. It is currently up 5% on the past month at a new high for the year to date. Few would have predicted that kind of outcome from a vote for the UK to leave the safety net of the EU.

But as cautioned, silver is a volatile metal to trade, and silver stocks perhaps even more so. If gold continues to show some strength, there’s a good chance silver’s momentum could carry it yet higher still with the GSR continuing to come down. If gold were to reach $1,400 or higher by the year end – as many analysts are now suggesting – silver and silver stocks could well be somewhere to put perhaps a limited section of your investment portfolio, but only a true gambler would risk all!

Gold Today –Gold closed in New York at $1,233.70 down from $1,249.50 on Friday. On Monday morning in Asia it traded around that level, then London held it there.

LBMA price setting:Was set at $1,230.85 down from Friday’s $1,245.40.

Yuan Gold Fix:

Trade Date

Contract

Benchmark Price AM

Benchmark Price PM

2016 04 25 SHAU 258.42 258.80

Dollar equivalent @ $1: 6.4945$1,237.63 $1,239.44

The dollar index is lower today, at 94.80 down from Friday’s 94.92. The dollar is barely changed against the euro at $1.1256 from Friday’s $1.1255.

The gold price in the euro was set at €1,093.51 down from Friday’s €1,105.65.

Ahead of New York’s opening, the gold price was trading at $1,235.83 and in the euro at €1,097.65.

Silver Today–The silver price closed in New York slightly lower at $17.03 on Friday almost unchanged on Thursday’s close. Ahead of New York’s opening the silver price stood at $17.00.

Price Drivers

The gold price is being pulled back not only by a weaker euro but by the upcoming FOMC meeting and that of the Bank of Japan. We do not expect any rate change from the FOMC but continued talk of how vulnerable the U.S. economy is to the global economy and a strong dollar. We expect that for the remainder of the year the Fed will be keenly watching U.S. data and will react to any strengthening of the Dollar negatively.

The trip by President Obama to Saudi Arabia to bandage wounds caused by the lifting of sanctions against Iran may well not succeed. Certainly, if U.S. citizens see a law enacted that will lead to suing the Saudi government for 911 implications, the agreement to price oil only in the dollar will be at risk.

Should Saudi Arabia accept other currencies, it will deal a blow to dollar hegemony far greater than the rise of the use of the Chinese Yuan in global trade. It does seem that the U.S. has lost its way regarding Middle Eastern politics.

In Japan, we also expect moves that try to lower the exchange rate of the Yen, no matter what Abe says. If we do hear such talk, we expect any Yen weakness to be short-lived. The’ talk’ will likely center around indications of the potential for bigger negative interest rates from Japan.

In both cases such intentions are harmful to the stable functioning of the global economy and will not be accepted easily by outside nations. We do not see such manipulation of exchange rates [currency war] being tolerated by competing nations including the U.S.A. This is gold positive!

Gold ETFs – Friday saw no sales or purchases into or out of the SPDR gold ETF or the Gold Trust. This leaves their holdings at 805.032 and 187.56 tonnes in the SPDR & Gold Trust respectively.

Silver – The silver price is continuing to show great strength as it holds around $17.00 while gold is lower. Today, it is has recovered from $16.89 to $17.00 before New York opened.

My latest article on sharpspixley.com opens as below. It looks at what is happening in the gold bull vs gold bear battle and the recent downturn in the gold:silver ratio which is beginning to see silver playing catch-up after a disappointing (relative to gold) performance to date.

The recent pattern in the gold price is making the yellow metals’ short term future somewhat unpredictable. Was it ever thus? There is perhaps, though, more of an equal battle between those pushing gold prices higher, and those looking to take it down, than there has been since the heady first three quarters of 2011 when the gold bulls were very much in the ascendancy, and the subsequent four years with the bears dominant.

This year has seen a significant change in sentiment towards gold, with the price up around 17% year to date. Silver is up around 14% as well, but has only recently started to express its upwards volatility vis-a-vis gold and is still having to play catch-up, with the Gold:Silver ratio at last beginning to come down from its highest level in nearly eight years when it last settled above 80 at the heart of the 2008 financial crisis….

Note: The gold price and silver prices were driven down overnight last night after something of a surge put down to the Brussels bombings. Whether this is indicative of a significant correction in precious metals prices, which many analysts think likely, or the big gold and silver short position holders manipulating the futures markets to protect themselves against what could be very large losses should the precious metals continue to surge, is as yet uncertain.

As readers of lawrieongold.com will already know, I also write for other websites and usually the terms of so doing are that I can’t publish those full articles here as well – but I can publish synopses and links so you can read the full articles on the other sites.

So here are a couple of articles I’ve published over the past couple of days on Sharpspixley.com

The first is an article on palladium the metal virtually all the mainstream analysts reckoned would be the best performing precious metal last year – but it turned out to be the worst performer in the precious metals complex – so don’t believe what the mainstream analysts tell you. They are wrong probably as often as they are right!

Indeed palladium is a terrific example of markets trumping analysts and that in these days of High Frequency Trading and enormous speculation on the futures markets, it is other factors than fundamentals that really move the prices in a relatively small market like that for palladium. Last year virtually every precious metals analyst out there was predicting that palladium would be by far the strongest performing precious metal as its fundamentals looked so positive. In the event it was about the worst performer of all. You can’t rely on the analysts to make you money in these hugely manipulated markets where futures, coupled with high frequency trading, and a major degree of investor sentiment, really call the tune…..

The second looks at the Gold:Silver ratio and the silver price, and how it is very much tied to gold’s performance, but with more volatility.

Excerpt:

The gold:silver ratio (GSR), much followed mainly by silver investors convinced that one day it will come down to its reputed historical level of 16:1, remains languishing in the high 70s. Personally I doubt whether we will ever see the 16:1 level again – certainly not in my lifetime (but I am getting old!) Apart from the very brief silver price spike when the Hunt Brothers tried to corner the silver market (and almost succeeded before being brought down and bankrupted) the GSR has moved since then in the range of 31.5 (a very shortlived spike downwards coinciding with the brief silver price peak in April 2011) and close to 100. As I write it is standing at 77.6.

Silver, sometimes known in the trade as ‘the devil’s metal’ is renowned for its price volatility. The fact is, that in most views, it can no longer be really considered a monetary metal per se. There is, though, still a substantial trade in officially issued silver coins which does, I suppose, give it some kind of monetary credibility although the sale value thereof tends to be substantially higher than any face value that may be put on them. They are minted very much for the investment market. But overall principal global demand for silver is industrial so the price movement relationship with gold is not necessarily a logical one – but it is ongoing nonetheless….